Oil Achieves Weekly Gain On Demand Optimism, But Challenges Remain

Major airlines are radically reducing their fuel-hedging programs: File Image/Pixabay

Crude trading sentiment continued its flip-flop trend with prices easing on Friday, but enough for the commodity to post a second consecutive weekly gain as optimism continued to grow for stronger summer demand as road and air travel resumes in many parts of the world.

Brent was down 12 cents at $67.97 per barrel by 13:43 GMT, while West Texas Intermediate fell by 10 cents to $64.61.

Eugen Weinberg, head of commodities research at Commerzbank, summarized the sentiment by stating, “The strong recovery of demand in the second half of the year, coupled with continued good production discipline on the part of OPEC+ [the Organization of the Petroleum Exporting Countries], is likely to tighten supply considerably and lend support to oil prices.”

Also, despite rising production rates, Warren Patterson, head of commodities strategy at ING, said, “Despite rising OPEC+ output, and also accounting for larger Iranian supply, the market is still set to draw down inventories throughout the year."

Of course, with a world still struggling to to regain equilibrium in the wake of the pandemic and government imposed lockdowns, challenges abound: media reported on Friday that some of the world’s biggest airlines - including British Airways - are shrinking their mammoth fuel-hedging programs after losing billions of dollars in derivatives markets last year.

British Airways parent IAG will cut its year-ahead fuel hedging to about 60 percent of its requirements compared to being about 90 percent hedged when the pandemic began; also, Deutsche Lutfthansa will cut its hedging volumes by about 20 percent.

FGE in a client note maintained a positive outlook while acknowledging lingering problems with Covid: it stated that the resurgence of the virus in India, Japan, and Thailand is hindering gasoline demand recovery, though some of the lost demand has been offset by countries such as China, where recent Labour Day holiday travel surpassed 2019 levels.

It added, "Gasoline demand in the U.S. and parts of Europe is faring relatively well; further out, we could see demand pick up as lockdowns are eased and pent-up demand is released during the summer driving season."